Bloomberg News

Gillard Wins Opposition Support for States Selling Energy Assets

August 12, 2012

Australia's Prime Minister Julia Gillard

Julia Gillard, Australia's prime minister. Photographer: Ian Waldie/Bloomberg

Prime Minister Julia Gillard’s policy of encouraging states to sell off electricity assets won support from Australia’s opposition, which is leading in opinion polls before elections due next year.

“We’re not in favor of governments owning businesses like this,” Shadow Communications and Broadband Minister Malcolm Turnbull said in an Aug. 11 interview on Sky Television.

Turnbull’s comments came a day after Australian Resources and Energy Minister Martin Ferguson told business leaders in Perth that state-government ownership of electricity assets in Western Australia, Queensland and New South Wales was hindering private investment. Soaring power bills have become a political issue in Australia, with Gillard last week saying state- government spending was mainly to blame rather than her new tax on carbon emissions.

Gillard, the nation’s first female prime minister, said Aug. 9 she’s seeking talks with state governments to find ways to restrict power-price increases. Australia on July 1 started charging about 300 of its largest polluters a fixed rate of A$23 a metric ton for greenhouse gases, with a market-based price scheduled to begin in 2015.

“The biggest barrier to greater investment in Western Australia’s energy infrastructure is government ownership,” Ferguson said. “It is crowding out private players who do not have the certainty that government policy won’t change and adversely affect them.”

Higher Prices

Ferguson said the result has been higher prices for consumers, which include operators of the resource projects that have driven the nation’s economic growth for the past decade. The lack of competition in Western Australia, which generates more than A$80 billion ($84.6 billion) in mineral export revenue a year, has seen electricity prices surge 57 percent since September 2008, even as the state’s government suppressed prices by A$367 million in the year to June 30, Ferguson said.

“In an environment where consumers are facing significant electricity-price increases despite the government limiting the full pass-through of costs, there is a clear argument for increased competition in the market,” Ferguson said.

To compensate for increased power prices in Australia, which relies on coal for 80 percent of its energy, Gillard’s government has delivered cash handouts to lower- and middle- income earners.

Poll Boost

Her tactics may be working. Support for her Labor government rose to the highest level in six months, according to an opinion poll published Aug. 7. Labor’s primary vote increased five points to 33 percent from two weeks before, while support for the Tony Abbott-led opposition Liberal-National coalition dropped one point to 45, the Newspoll for the Australian newspaper showed.

After the closest election in seven decades, Gillard put together a minority government in September 2010 with support from independents and Greens. The price was being forced to backtrack on a promise not to tax carbon emissions, which was implemented on July 1 along with new taxes on iron ore and coal mining profits.

Gillard’s carbon price is the government’s main tool for reducing the country’s reliance on coal and meeting its target for a 5 percent cut in greenhouse-gases from 2000 levels by 2020. The levy will be fixed until 2015, when the nation will introduce a cap-and-trade system that lets companies buy and sell a fixed number of emissions permits.

Abbott’s Pledge

Abbott has pledged that should his coalition win power in elections due by November 2013, he would legislate to scrap the carbon price, which Treasury forecasts will reap A$24.7 billion in revenue within four years. He’s attacked what he calls the “toxic tax,” saying it has been responsible for driving up power bills.

“There are already some early indications that people are starting to see through the incredible wild scare campaign that has been run about carbon pricing,” Gillard said in an interview published in the Age newspaper Aug. 11.

Turnbull, the former coalition leader who was defeated by Abbott in a December 2009 party room ballot because of his support of an emissions trading system, said the carbon tax hasn’t been responsible for power-price increases before July 1.

“Over the last five years or so in the east coast capital cities, electricity prices have gone up by about 50 percent and this is pre-carbon tax,” Turnbull said. “That has been largely a function of investment in distribution and transmission in polls and wires.”

State Resistance

State-owned electricity companies were overspending on improving infrastructure to reduce the chances of blackouts that were politically damaging, Turnbull said.

Queensland and Western Australia, both states controlled by the Liberal-National coalition, have rejected Ferguson’s calls to sell off power assets. Western Australian Energy Minister Peter Collier on Aug. 10 said Labor should “walk away” from commenting on the state’s energy industry, The Australian newspaper reported.

“Calls by the federal government for states to sell power assets would result in Queensland taxpayers losing more than A$1.5 billion through massive devaluations of electricity assets due to the carbon tax,” Queensland Energy Minister Mark McArdle said in an e-mailed statement on Aug. 10.

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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